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The Ospraie Fund. 1861 Capital Management. ASTA/MAT. Tontine Partners LP. The freewheeling world of hedge funds has crashed and burned in recent months, its fate tied to the financial crisis, investor redemptions and illiquid assets. As a result, thousands of individual investors, charities and pension fund holders are now facing unexpected and unprecedented financial losses.

The past year has seen hundreds of hedge funds go out of business. In 2008, some 920 funds were shuttered - a figure that eclipses the prior record set in 2005 when 848 hedge funds closed down. On average, hedge funds lost more than 18% last year. The previous worst performance by hedge funds occurred in 2002, posting a loss of 1.5%. In 2007, hedge funds returned 9.9%.

As hedge funds literally fought for survival in 2008, many would lose the battle altogether. Among them: The Ospraie Fund, which posted nearly a 40% loss in 2008. An even worse performance came from the Tontine Partners LP hedge fund, which ended the year down an astonishing -91.5%.

Other funds such as Tudor Investment Corp. and Citadel Investment Group LLC have been forced to limit investor redemptions or risk implosion. Earlier this month, Citadel, whose flagship hedge fund lost 55% in 2008, announced plans to resume payouts to investors. Investors’ access to their money, however, will occur no sooner than April 1.

Hedge funds that trade municipal bonds also are experiencing a rough time these days. As reported Feb. 29, 2008, by MarketWatch, problems with bond insurers and other disruptions borne out of the global credit crunch have pushed yields on municipal bonds close to, or above, those of comparable Treasury bonds. For hedge funds that try to make money from the difference, called the spread, between the yields, the end result translates into the likelihood of margin calls.

That’s exactly what happened to hedge funds like Citigroup’s ASTA/MAT hedge funds. In using a municipal arbitrage strategy, the funds ultimately were forced to sell their positions at fire-sale prices, causing significant losses to investors. 

The dismal performance of hedge funds has continued into 2009. One of the most recent hedge funds to shutter is the Highland CDO Opportunity Fund, which encountered massive losses from its holdings of high-risk collateralized debt obligations (CDOs). In October, similar circumstances forced Highland to close two other hedge funds: the Crusader Fund and the Credit Strategies Fund.

The shocking upheaval in the hedge fund industry is casting new light on the largely unregulated world of hedge funds. Registration with the Securities and Exchange Commission (SEC) is done on a voluntary basis only. At the same time, investments in hedge funds have grown astronomically. At their peak, approximately 10,000 hedge funds managed nearly $2 trillion in assets. Today, the figure is closer to $1 trillion.

On Jan. 29, 2009, a new bill was introduced in the Senate designed to improve oversight and transparency of the hedge fund industry. Described by Senators Chuck Grassley and Carl Levin as an “attempt to address securities law loopholes that enable hedge funds to operate under a cloak of secrecy,” the Hedge Fund Transparency Act of 2009 (S. 344) would make it mandatory for hedge fund managers to register with the SEC and open up their books to government examiners.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

Following a year of big financial losses in many of its bond funds, OppenheimerFunds has begun slashing jobs and laying off employees. The New York-based company’s bond funds lost an average of nearly 30% in 2008, as customers withdrew some $12 billion. That puts Oppenheimer in the bottom 11% of competitors, according to Bloomberg.

The combination of investment losses and a mass exodus of clients had a dramatic effect on the money-management firm’s bottom line. As of Dec. 31, Oppenheimer’s assets had fallen by 45%.

This week, OppenheimerFunds announced plans to immediately reduce its workforce by about 10%. The loss of 220-plus positions will affect offices in New York, Boston, Rochester and Denver.

Adding to OppenheimerFunds’ woes is the ongoing case involving Bernard (Bernie) Madoff and his alleged $50 billion Ponzi scheme. Tremont Group Holdings, which is owned by OppenheimerFunds, invested $3.4 billion with Madoff.

Oppenheimer’s biggest problems stem to ill-timed bets on subprime mortgage securities and risky credit-default swaps, which created a financial crisis for investors of the Oppenheimer Champion Income Fund (OCHCX). The fund plummeted by more than 80% in value last year, making it the worst-performing taxable high-yield bond fund of 2008. By comparison, similar bonds were down 30%.

The manager of the fund, Angelo Manioudakis, resigned from Oppenheimer last month. 

Other Oppenheimer funds have been on a losing streak, as well. The Oppenheimer Core Bond Fund (OPIGX), which is offered by 529 plans in Oregon, Texas, Maine and New Mexico, fell nearly 40% last year. By comparison, similar funds posted 4% gains.

Then there’s the Oppenheimer Rochester National Municipals Fund. Managed by Ronald Fielding, the fund dropped about 50% in 2008.

Meanwhile, investors of several Oppenheimer bond funds have filed claims with the Financial Industry Regulatory Authority (FINRA). Among their charges: Oppenheimer managers represented certain funds, including the Champion Income Fund and the Core Bond Fund, as ultra-safe and conservative when, in fact, they were tied to high-risk, speculative investments.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

Unexpected and unexplained losses in the Oppenheimer Champion Income Fund (OCHCX), the Oppenheimer Core Bond Fund (OPIGX) and other funds owned and managed by OppenheimerFunds are causing a financial headache for investors, college savings plans and pension funds across the country. Now, as OppenheimerFunds prepares for what could be the first of a lengthy run of arbitration claims, a consortium of four nationally recognized law firms has launched an independent investigation into how Oppenheimer executives may have misrepresented the funds to investors.

The legal alliance behind the investigation into OppenheimerFunds includes Maddox Hargett & Caruso, Uhl & Bakhtiari, David P. Meyer & Associates, and Page Perry, LLC. It was in 2007, following the onset of the subprime mortgage crisis and the subsequent meltdown on Wall Street, that the group created their affiliation - SubprimeLosses.com - to help individual and institutional investors combat fraudulent actions on the part of dishonest investment firms and brokerages.

As it turns out, dishonesty and wrong-way bets on subprime mortgage securities and risky credit-default swaps are responsible for the fiscal nightmare now facing investors in the Oppenheimer Champion Income Fund and the Core Bond Fund. The funds, which initially had been presented as conservative and safe investments by Oppenheimer management, were instead tied to high-risk, speculative derivative deals.

By the end of December 2008, assets in the Champion Income Fund had plunged by more than 80% in value. The Oppenheimer Core Bond Fund, which is offered by 529 plans in Illinois, Oregon, Texas, Maine and New Mexico, fell by more than 40% last year. By comparison, similar funds posted 4% gains.

Both the Oppenheimer Champion Fund and the Core Bond fund were managed by Angelo Manioudakis. In December, Manioudakis abruptly resigned from his position at OppenheimerFunds.

Meanwhile, investors are left to inherit the repercussions of Manioudakis’ ill-informed management decisions. Far from safe or conservative, the Champion and Core Bond funds invested in extremely risky and highly illiquid derivatives. Not knowing about this critical detail has collectively cost investors - many of whom are retirees, living on a fixed income - millions of dollars. Yet, Oppenheimer management, company marketing materials, even information contained in the funds’ prospectus never revealed this important and vital fact.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

In February 2007, M&T Bank came across a complex Wall Street innovation called “Gemstone VII.” Deutsche Bank did the pitching to M&T, and reportedly promised big returns and little risk. Like many Wall Street-engineered products, however, the investment turned out too good to be true. M&T Bank ended up losing $80 million.

M&T Bank is now suing Deutsche Bank for what it claims was a misrepresentation of Gemstone’s securities. Far from the conservative, low-risk instrument that M&T thought it was getting into, Gemstone consisted of bonds backed by toxic subprime mortgages and risky credit-default swaps.

M&T also contends that Deutsche Bank withheld key information from credit rating agencies Moody’s Investors Service and Standard & Poor’s regarding the securities held by Gemstone. By not having that information, the agencies inappropriately assigned higher ratings than they should have to the CDOs.

According to the complaint filed Jan. 19 with the New York State Supreme Court in Erie County, M&T is seeking more than $100 million of punitive damages.

The M&T/Deutsche Bank case is indicative of a new trend in which corporate and institutional investors are taking Wall Street to task for falsely marketing certain financial instruments. Another case that involves the mishandling of CDOs is the Ohio State Teachers Retirement System, which recently sued and won a $550 million settlement from Merrill Lynch.

Institutional investors are often regarded as “sophisticated” and “financially savvy;” therefore, critics argue that they should know what they’re investing in. However, whether an individual or institutional investor, brokerage firms and investment banks are bound by law to provide complete and truthful disclosure about the securities they represent. If misrepresentation occurs, institutional investors deserve to hold the responsible parties accountable.

It would appear that the law is leaning in their favor, as evidenced by the Ohio State Teachers Retirement System’s $550 million win from Merrill Lynch and cases like the one just filed by M&T.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Many parents with money tucked away in 529 college savings plans are shocked to learn that their children’s future education could be at risk because of massive losses tied to the Oppenheimer Core Bond Fund (OPIGX). The bond fund, which is offered by 529 plans in Oregon, Texas, Maine and New Mexico, fell nearly 40% last year. By comparison, similar funds posted 4% gains.

Problems for the Oppenheimer Core Bond Fund are tied to bad bets made by the fund’s management team on high-risk mortgage-backed securities and credit-default swaps. When the housing market hit a wall last year and credit froze up, those investments essentially became worthless.

As reported Jan. 1 by USA Today, the Texas College Savings Plan’s had 50% of its assets in the Oppenheimer Core Bond Fund. As a result, the portfolio fell 21% in 2008.

Faring even worse is the state of Maine. Its NextGen College Investing Plan had 40% of its assets in the Oppenheimer Core Bond Fund. As of Nov. 28, 2008, the portfolio had fallen more than 42% in value.

Parents, many of whom have students either about to enter college or currently enrolled, are now feeling the repercussions of the fund’s unexpected losses. Making matters even worse, the fund was marketed as ultra-safe and a conservative investment.

In Oregon, OppenheimerFunds manages the portfolios of three plans under the 529 College Savings Network. Parents who invested in some of the college savings plans most conservative portfolios have now lost thousands of dollars because of the Oppenheimer Core Bond Fund. Currently, Oregon’s state attorney general’s office has launched an investigation to determine if Oppenheimer misrepresented the bond fund to investors.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

In addition to filing securities fraud charges against Oppenheimer & Co. for inappropriate sales of auction-rate securities, Massachusetts Secretary of State William Galvin wants to revoke Oppenheimer CEO Albert Lowenthal’s broker-dealer registration license. According to the complaint, Galvin alleges that Lowenthal and other top executives “intentionally betrayed the trust of clients” by selling auction-rate securities to investors when the market for the instruments was on the verge of collapse.

Galvin’s administrative complaint also alleges that Lowenthal and other Oppenheimer senior managers sold millions of dollars in their own personal ARS holdings at least two weeks prior to the market’s February 2008 collapse. Meanwhile, they failed to give clients a heads-up of the trouble to come.

In the complaint, charges allege that Lowenthal sold nearly $1.8 million in auction-rate securities; Larry Spaulding, chief operating officer, sold $700,000; Greg White, director of Oppenheimer’s auction-rate securities division, sold $300,000 of his auction-rate securities, and $100,000 of his wife’s; and Louis Gelormino, a desk supervisor and senior vice president, sold $75,000.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Unprecedented growth and innovation in the structured finance market have intensified the need for greater transparency and improved risk management of certain structured products. A speech titled Structured Finance Activities: The Regulatory Viewpoint from Mary Ann Gadziala, associate director of the U.S. Securities and Exchange Commission, examines the challenges of these investments, and discusses the key principles for protecting investors, as well as the potential liability of financial institutions for securities law violations arising from deceptive structured finance products and transactions.

The speech can be viewed in its entirety at: http://www.sec.gov/news/speech/2006/spch092006mag.htm

Investors looking for investments with high-income possibilities and diversification thought they hit pay dirt with the IMS Strategic Income Fund (IMSIX). They were wrong. The complex structured investment product from Oregon-based IMS Capital Management may have offered strong income potential, but it also exposed investors to considerable risks.

Carl W. Marker and Don Shute are the managers of the fund, which is far from a traditional income fund. Launched in 2002, the IMS Strategic Income Fund entails a wide range of investing options, including everything from international stocks and bonds to reverse convertibles and real estate investment trusts.

It is the reverse convertible component of the IMS Strategic Income Fund that has fallen upon especially hard times. In simple terms, a reverse convertible note is a complex derivative tied to the performance of one or several stocks. Often touted for their high-yield potential, reverse convertibles also can deliver a knock-out punch to investors. If the reverse convertible is linked to a stock that falls sharply, investors could see their entire investment wiped out.

In the case of the IMS Strategic Income Fund, reverse convertible notes caused the fund to suffer huge losses this year because of their ties to stocks like General Motors Corp. GM shares have lost 90% of their value in 2008 - the lowest in 65 years - and the automaker is now trying to eke out a rescue package from the federal government in order to stave off possible bankruptcy.

Meanwhile, the IMS Strategic Income Fund is down 33% in value, making it one of the worst performers in the conservative-allocation category tracked by Morningstar, Inc.

Two years ago, an Oct. 16 column in the New York Times by chief financial correspondent Floyd Norris discussed the hazards of reverse convertible notes. Norris wrote that Alan Greenspan, former chairman of the Federal Reserve, often extolled the virtues of structured investment products like reverse convertibles yet never seemed to focus on their potentially explosive downside. One of these days, Norris said, “a blow-up will be severe enough to bring regulation and disclosure in these markets.”

Fast forward two years later, and Norris’ prediction has come to fruition. That blow-up is here.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

The plot continues to thicken in the legal saga involving Ameriprise Financial Services and a money-market fund that broke the buck recently. Ameriprise, which is suing Reserve Management Company’s Primary Fund, wants a federal judge to hand over audio tapes that reportedly contain conversations of sales reps alerting large institutional investors in the fund to redeem their shares at full value before it was too late.

If the allegations are true, the selective disclosure would have financially devastated thousands of Ameriprise investors. As reported Oct. 21, 2008, in the New York Times, Ameriprise and its clients had more than $3.3 billion in the Primary Fund when it “broke the buck” on Sept. 16 by falling below a dollar a share. Two smaller funds broke the buck, as well.

The Primary Fund is calling the selective disclosure charge by Ameriprise “outrageous.”

Our affiliation of securities lawyers is actively involved in advising individual and in stitutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

The basic principle of investing relies on it: diversification. In almost every instance, but especially during times of market turmoil, a diversified investment portfolio serves as a prerequisite to help limit risks and mitigate potential losses for investors. Unfortunately for those who have gone the other investing route, the lesson learned can be costly - and one that many investors are now discovering as they face severe financial losses as a result of portfolios overly concentrated in one type of investment.

A prime example is an investor’s whose portfolio is heavy in preferred stocks only. Bought and sold like common stocks, preferred stocks actually are more similar to bonds. Investors who hold preferred shares means the issuing company pays them any dividends before paying common stock shareholders. In the event a company goes bankrupt, preferred shareholders again move to the front of the line and have first rights to claim the liquidation proceeds of a company’s assets.

At the same time, investors with investment portfolios solely concentrated in preferred shares can open themselves up to significant financial risks. If a portfolio includes investments in several asset sectors versus a single one, the chances that all of those sectors will sustain losses simultaneously is relatively slim. On the other hand, the likelihood an investor might encounter financial losses by holding only one type of security or asset class certainly is not hard to fathom.

In addition, many preferred stocks come with their own set of rules and regulations - both of which can translate into more profits or extra risks.

Stories involving investors who have suffered sizeable financial losses because their brokerage firm over-concentrated their accounts with preferred stocks are becoming more and more visible. Case in point: Freddie Mac and Fannie Mae. On Sept. 8, when the federal government took control of the two mortgage giants to prevent them from going under, investors who had been sold various series of the companies’ preferred shares as “safe, stable fixed-income investments” were shocked to learn the truth. In the week following the takeover by the government, Fannie Mae’s 8.25% preferred stock dropped to $2.65 from $13.70, while Freddie Mac’s 5.57% preferred stock fell to $1.50 from $9.15.

As of late September, investors holding certain series of preferred shares in Freddie Mac and Fannie Mae have seen their investments decline in value by more than 90%. Many of these investors say they were never advised of the risks associated with preferred shares by their brokers. Moreover, some investors were holding preferred shares of Freddie Mac and Fannie Mae as their sole investment, thus leaving the doors of their portfolios wide open for potential financial disaster.

To make matters worse, some investors believed that because Fannie Mae and Freddie Mac were considered “quasi-governmental enterprises,” any defaults on their preferred shares in the companies would be covered by Uncle Sam. They came to that conclusion because that’s what they were told by their brokerage firm.

The fact of the matter is that holders of preferred shares in Fannie Mae or Freddie Mac are in no way covered or protected by the U.S. federal government. Any financial losses these investors sustain are theirs alone.

There are other examples, as well, documenting what can happen to investors whose portfolios are overly concentrated with preferred shares in a single sector or company - from Lehman Brothers’ bankruptcy filing, to the bailout of American International Group Inc. (AIG), to the acquisition of Bears Stearns by JP Morgan Chase at a fire-sale price. As in these and other cases that are coming to light this year, investors who took the advice of their investment bank and bought preferred shares as a “sure bet” and a safe, fixed-income investment are learning an entirely different story as they watch their life savings literally vanish before them.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.